Many benefits from setting up your own fund

QIs it possible to set up a SMSF so I can reduce the management costs I now pay, and shift the money I have in my present super fund, even after retirement? If so, what is involved?

A An SMSF can be set up at any time and funds held in another super fund rolled into the SMSF, no matter what the age or retirement status of the member. The main restriction applies to a member's age and their ability to make further concessional or non-concessional contributions. Once a person turns 65, they must pass the work test to make further contributions.

To set up your SMSF, you will either need to have another person join the fund as a member and trustee, or you will need to incorporate a company that will be the trustee of the fund, with you acting as the sole director shareholder. You will then need to have a superannuation trust deed done.

Costs for drawing up a trust deed can vary widely, from as little as $110 up to more than $1000, depending on who you use. It pays to shop around and make sure you are not paying too much.

After the deed has been finalised and signed, you must then apply for an ABN and tax file number for the fund. Then the SMSF's bank account must be set up to receive the funds from your existing super fund as a rollover and any new contributions.

Q I intend to set up my sole-trustee SMSF and buy a residential property as part of my diversified asset allocation within the fund. This property will be paid for in full. As a fund in pension phase pays no tax, is it still entitled to the normal depreciation and other tax deductions associated with the costs of owning a rental property? Also, once in pension phase, the super fund's assets are valued each year. Valuing shares, bonds and cash on a specific date is relatively simple. But how do I value a rental property for this purpose?

A You are right that a super fund in pension phase pays no tax. But this does not alter how income and expenses are treated for tax purposes. The super fund can still decrease the rent it receives by all allowable deductions such as depreciation, agent's fees, rates etc. Once the net taxable rent has been calculated no tax is paid by the super fund if it is in pension phase.

The investments in a SMSF that can be easily valued each year, such as shares and managed investments, should be shown at their market value on an annual basis. For investments such as property and art works the Tax Office allows the fund's trustees to value these assets once every three years.

Trustees can obtain valuations for investments such as property from qualified valuers, suitably experienced real estate agents, or calculate the value themselves.

Questions can be emailed to super@taxbiz.com.au